Fires, Rehires and Non-Competition Agreements: Termination of Employment, No Matter How Brief, May Start the Clock to Run

by Akerman LLP - HR Defense

An Indiana Court of Appeals has ruled that an employer cannot enforce a two year non-compete agreement against an employee who was fired for just 10 days and then rehired because the termination was treated as permanent and there was no writing signed by the employer that extended the duration of the non-compete agreement as required by the express language of the agreement. Nightingale Home Healthcare, Inc. v. Helmuth, No. 29A04-1403-PL-12 (Ind. Ct. App., August 28, 2014).

In 2008, Nightingale, which provides in-home healthcare, hospice care, and private duty care to residents, hired Carey Helmuth as a patient advocate. As a condition of his employment, Helmuth signed a non-compete agreement, which protected Nightingale's proprietary and confidential information and geographically restricted the employee's ability to compete with Nightingale for two years after his separation of employment.

On October 16, 2009, Nightingale terminated Helmuth for substandard work and violation of company policies. Upon termination, Helmuth's compensation, benefits, and duty to perform ceased and Helmuth began the process of obtaining unemployment benefits. However, within days of Helmuth's termination, Nightingale offered to revoke the termination and offered Helmuth to return to work in the same position as patient advocate subject to the prior terms and conditions of his initial employment including the initial non-compete agreement he previously signed. Helmuth accepted and was rehired within 10 days of being terminated. Nightingale did not ask and Helmuth did not sign a new non-compete agreement upon his rehire.

On March 5, 2012, Nightingale fired Helmuth. In May 2012, Helmuth was hired by one of Nightingale's competitors for a position similar to the one Helmuth had while employed at Nightingale and in a similar geographical market.

Upon learning of Helmuth's new employment, Nightingale sued Helmuth for breach of the non-compete agreement. At issue before the court was whether the non-compete restriction became effective when Helmuth was first terminated on October 16, 2009 or subsequently terminated on March 5, 2012. The court found the former for two main reasons.

First, the court rejected Nightingale's argument that its 2009 termination of Helmuth was voided by Nightingale's revocation of the termination. The court found that the termination was unconditional and intended to be permanent. Second, the fact that Helmuth returned to work on the same terms he previously agreed upon was found irrelevant because the non-compete agreement expressly provided that any extension or modification had to be in writing and signed by Nightingale, and no such executed writing by Nightingale existed. Accordingly, Helmuth's restrictive period was found effective as of October 16, 2009. When Helmuth began employment with Nightingale's competitor in May 2012, the non-compete had expired and was therefore unenforceable.

The Nightingale decision should serve as a reminder to employers to know and comply with the operative language of an employee's non-compete agreement to ensure that the employer's interests remain protected as initially intended. Accordingly, if an employee's non-compete agreement expressly provides that it can only be extended by a signed writing, then a signed writing extending the non-compete must be obtained, regardless of the circumstance that necessitates the extension.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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